Monthly Archives: December 2012

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FARC and the Colombian Government: Deal or No Deal in Historic Peace Talks?

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In the December issue of Risk Management, we published a piece about the rising risk of terrorism in Colombia due, in part, to the Revolutionary Armed Forces of Colombia (FARC), the country’s violent guerrilla group. Though there has been almost 50 years of tension between the anti-imperialist organization and Colombia’s government, recent peace talks created a sliver of hope for an end to violence between the two factions. FARC even pledged to cease kidnapping and declared a unilateral ceasefire until January 20, 2013.

But according to Colombian President Juan Manuel Santos, that’s just not enough. The president promised to support FARC as a legitimate political party if the group ended its violent ways — now.

“If Farc wants to end the conflict and switch bullets for votes, it will find the government at its disposal,” he said.

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“But if it tries to put its revolution on the table again instead of the decree placed on the table in Cuba, there will be no peace.” He added: “This cannot be a process of years but months.”

Refusing to accept the group’s cease fire pledge, President Santos made his impatience clear with a deadly raid December 3 that targeted a FARC camp, killing at least 20 rebels. FARC, apparently in retaliation, launched an attack of its own seven days later, killing one and injuring three in the southwestern region of Colombia.

But if these two groups can manage to come to a resolution, it would be a historic moment for all of Colombia.

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It would also significantly quell the country’s rampant, rebel-led kidnap-for-ransom practice.

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 As Will Miller, divisional director of special contingency risks for Willis, pointed out in his latest article on WillisWire, “The FARC’s actions in these initial stages of peace negotiation are a strong indication that there could be a reduced risk of kidnaps for ransom in Colombia.”

The peace talks are indeed a good sign — for many reasons. But we must remember that the FARC are not the only aggressive, paramilitary group to call Colombia home. And that may never change.

Risk Management Staff Picks: Top 5 Books of 2012

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In each issue of Risk Management, we publish book reviews from the staff. Some books are easily forgettable, while others make us stop and think. They inspire us, teach us and may even end up on our bookshelves at home. The following are our picks for best business books of 2012:

The Wide Lens
When it comes to innovation, common sense dictates that if you develop a great product it will be successful. But history is littered with great products that never quite made it, from electric cars to inhalable insulin to any e-reader that came out before the Kindle. So why do some great innovations succeed while others fail? According to author Ron Adner in his book The Wide Lens, the reason doesn’t lie with the innovation itself. Instead, many companies overlook two important risks while taking an innovation from concept to reality, and these blind spots can doom the product before it even gets out of the gate.

 

Street Freak
Expensive scotch, $3,000 dinners, 80-hour workweeks, million-dollar trades, million-dollar paychecks and acute psychosis. It’s the life of a big bank trader. Or, at least it was for Jared Dillian, a Lehman Brothers index arbitrage trader from 2001 to 2008. In his energized memoir, Street Freak, Dillian recounts his days at what used to be one of the largest banks in the world, from his time as an associate assigned to work security when Lehman relocated to Jersey City after 9/11 to his rise to the firm’s head exchange-traded fund trader. In between were massive highs and lows, and a realization that Dillian was afflicted with bipolar and obsessive-compulsive disorders, conditions that almost cost him his life.

 

Learning from the Octopus
Since 9/11, the concept of national security has changed. The United States has not been attacked by terrorists since that day, so something must be working, but the general approach has been fundamentally flawed, according University of Arizona marine ecologist Rafe Sagarin in his new book Learning from the Octopus. To Sagarin, the general mentality to fight a “war on terrorism” — a war with a broad, reactionary strategy that can never be won—is misguided. “Fish don’t try to turn sharks into vegetarians,” writes Sagarin. “Living immersed in a world of constant risk forces the fish to develop multiple ways to live with risk, rather than try to eliminate it.”

 

Consent of the Networked
Many social uprisings in emerging countries have gained momentum via the internet. From the first, in Tunisia in 2002, to the 2011 ouster of Egyptian dictator Hosni Mubarak, an internet revolution has provided a platform for those without a voice. The power of the web to change history and turn political strife to personal freedom is documented with great detail in Consent of the Networked. But the internet’s power can also spread evil. Author Rebecca MacKinnon, a journalist and former CNN bureau chief in Beijing and Tokyo, uses China as one example. In possibly the best chapter in the book, the author details how Chinese internet crusaders are using the web to fight against, among other things, injustice within the legal system. “The internet enables ordinary Chinese people to speak truth to power and pursue justice in unprecedented ways,” writes MacKinnon. “At the same time, Chinese internet users have a manipulated and distorted view of their own country as well as the broader world.”

 

Into the Storm
The Sydney to Hobart Yacht Race is considered one of the most prestigious and difficult open water races in the world. Covering 628 nautical miles from Sydney, Australia, to Hobart, Tasmania, the race is known for challenging ocean conditions, blustery winds and frigid temperatures that can test even the most experienced sailors. Into the Storm tells the gripping story of how one of the smaller boats in the competition, the AFR Midnight Rambler, not only survived the race, but went on to win the prized Tattersall’s Cup, which is awarded to the winner. In the process, author Dennis Perkins, who also recounted Ernest Shackleton’s Antarctic expedition in Leading at the Edge, shares interesting lessons about the power of teamwork under the most extreme conditions.

 

The Risks of Social Media: Facebook Post Attracts SEC Action

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We’ve written about the perils of careless social media use time and time again on the Monitor and in Risk Management. And no matter how many company-wide memos are issued or how many training courses are thrust upon employees, as long as social media exists, there will be those that, whether intentionally or innocently, create a reputational or regulatory nightmare for their employer or another company.

Reed Hastings, the CEO of Netflix, is one of them. The active Facebook user commonly posts about the success of Netflix, often thanking users of the service for their loyal support, which sounds like the first line from a book on how to correctly promote a product using social media. But Hastings may have become a little too comfortable sharing certain aspects of the company’s information.

In July of this year, he posted to his 240,000+ Facebook subscribers that “Netflix monthly viewing exceeded 1 billion hours for the first time ever in June.” That type of boastful post may seem like nothing more than a proud CEO to many, but to the Securities and Exchange Commission, it was quite possibly an illegal statement. On Wednesday, the SEC issued Netflix a Wells Notice, which means SEC staff will recommend that the SEC issue either a cease-and-desist action and/or a civil injunction against Netflix and Hastings over the alleged violation.

Hastings responds via, you guessed it, Facebook.

Did Hastings violate rules regarding selective disclosure? Should all companies, especially those the size of Netflix, have legal counsel review all social media posts representing the company’s views? Should every company employ a social media risk manager?

It seems we’re getting there.

ERM at S. Claus, Inc.

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During the summer months, the North Pole’s post office (Zip Code 00000) is usually a placid place. But when the calendar turns to October 1, the pace of activity quickens. Letters from boys and girls around the world start arriving in droves signifying the building excitement of the young customer base of the largest employer in the company town, S. Claus, Inc. Hundreds of letters a day arrive in October, thousands in November and millions during the second and third weeks in December and each one must be carefully sorted and checked twice by the audit and compliance department as part of an automatic appeal process.

Each letter contains lists chock full of special requests for the person who made the North Pole so famous: a certain Mr. S. Claus, chairman and CEO of S. Claus, Inc. Mr. Claus expects perfection so everyone working at the company is focused on the mission-critical fourth-quarter deadline. There can be no identification and delivery mistakes and no disappointed customers.

Achieving a goal of 100% perfection required that S. Claus, Inc. adopt and implement the enterprise risk management (ERM) process. Mr. Claus assumed the duties of chief risk officer and an ERM charter was drafted that set the tone at the top: there is no tolerance for risk. The S. Claus board-level risk committee, executive risk committee and internal audit group work together. S. Claus with the understanding that success results from embedding the ERM process into a carefully crafted strategic plan.

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Both the unacceptable downside of failure and the upside gain resulting from efforts to increase their customer base have been analyzed and incorporated into actionable items.

The ERM process recently paid off when an enterprise-wide risk identification and assessment noted that there could be some kinks in the supply chain. Supply chain risks are considered mission critical by Mr. Claus and always appear in the upper right red quadrant of a specially designed risk heat map. Amid rumors of a possible shut down of hundreds of local post offices around the United States, Mr. Claus had a private meeting with the U.S. Post Master General to discuss the problem.

After the meeting, Mr. Claus determined that the issue was moving toward resolution and this particular supply chain risk could be re-plotted in the yellow segment of the heat map labeled “proceed, but with vigilance.”

One item on the risk map is of deepening concern, however, because it has been migrating from green to yellow to red far more frequently than ever before. It is a unique supply chain risk – the growing popularity of smartphones and tablets. Every time a new model is announced, usually in the third quarter, holiday demand escalates rapidly. The concern is that these high-tech gadgets are among the few items that are outsourced because the workforce of elves is busy making more traditional items (hula hoops are still big in some corners of the world). Nevertheless, quality must be maintained. The S. Claus brand name is considered priceless and cannot be put in jeopardy.

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So procedures have been put in place to ensure that these products meet the same standards as anything else that S. Claus, Inc. produces.

Another important risk management issue is the curious relationship between S. Claus, Inc. and the temporary “helpers” located around the world. The foreign exchange exposures are enormous. There has been a great deal of volatility this year, especially in Europe, and Mr. Claus has had to employ a hedging strategy to take advantage of any upside gain while also protecting the downside risk, since that is, in essence, risk management.

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